You are making a $120,000 investment and feel that a 10 percent rate of return is reasonable given the nature of the risks involved. You feel you will receive $48,000 in the first year, $54,000 in the second year, and $56,000 in the third year. You expect to pay out $12,000 as an additional investment in the fourth year. What is the net present value of this investment given your expectations?
A) $2,141.93
B) $5,607.16
C) $14,206.10
D) $16,233.33
E) $18,534.25

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows to the present value and subtracting the initial investment. The NPV formula is: NPV = ∑ (Cash flow / (1 + r)^t) - Initial Investment. Using a 10% discount rate, the NPV is approximately $2,141.93.

You Are Making a $120,000 Investment and Feel That a 10